Pharmaceutical Industry Dynamics that drove the formation & growth of the Competitive Intelligence function

1. Pharmaceutical Industry Dynamicsthat drove the formation & growthof the Competitive Intelligence function Neil Mahoney – President Global Business Management Concepts 126 Clinton Road Fairfield, NJ 07004 973-882-1201

2. Agenda for Presentation • Government Impact on Industry Dynamics • Portfolio Planning Impact • CI Function and its Operations • Role of Internal CI versus Consultants • Key Counter Intelligence Concepts • Summary and Conclusions

3. Index of CPI versus HCPI from 1962-2001 GATT Update 1995 Clinton Healthcare Debacle 1992 Nixon Wage & Price Controls Hatch Waxman Act of 1984 Kefauver Hearings Impact HMO Acts of 1973,76,78 EU Created 1993 Index based on 1964 Prices Medicare 1965 Prescription Drug User Fee Act 1992 1962 1974 1984 1992 2001 CPI: Consumer Price Index; HCPI: Healthcare CPI (Rx and Medical Supplies ) Source: Bureau of Labor Statistics

4. Total Drug Development Time from Synthesis to Approval 14.2 14.2 11.6 8.1 Source: DiMasi, J.A., “New Drug Development in U.S. 1963-1999”, Clinical Pharmacology & Therapeutics 2001.

5. Generic Share of U.S. Rx Unit Market Source: IMS Health 2001

6. NCE Lifecycle Sales AnalysisAverage Percent of Peak Sales Potential Hatch Waxman Exclusivity Source: IMS (Based on 816 NCE’s launched since 1983) NCE = New Chemical Entity = New Molecular Entity

7. NCE Lifecycle Sales AnalysisAverage Percent of Peak Sales Potentialby Brand and Generic % Share Hatch Waxman Exclusivity 100% 96% 95% 76% 71% Source: IMS (Based on 816 NCE’s launched since 1983) NCE = New Chemical Entity = New Molecular Entity

8. USA is key to NCE Success % Sales of NCE Launches – 1997-2001 Source: IMS Health, MIDAS

9. Comparison of Average Price Per Rx in 2000Indexed to 1995 Pricing for NME and IMD Pre 1995 Standard IMD Standard NME Priority IMD Priority NME NME: New Molecular Entity IMD: Incrementally Modified Drug Sources: Scott-Levin SPA data; Internal analysis

10. Field Force Expansions Exemplify Increased Investment Spend to Accelerate Market Penetration Thousands of Field Reps Source: Scott-Levin’s Sales Force Trends

11. Industry Tries to Improve Discovery Process • Utilizes new Technologies: - High Throughput Screening - Combinatorial Chemistry - Genomics for Target and Lead Finding • Evaluate Strategic Opportunities - Disease Strategy for Target Areas - Platform Technologies - Target Product Profiles

12. Ethical Pharmaceuticals R&D Expenditures 30.5 25.7 $Billions 15.2 4.1 1.9

13. Clinical Development Projects per Phase Sources: Pharmaprojects, UBS Warburg, CDER/FDA

14. Industry Supplements internal R&Dwith BD&L/M&A Activity Source: Evaluate, Internal Analysis

15. The Industry Compensates by ShiftingEmphasis to Blockbuster Drugs Lilly Aventis SGP AZN Merck Wyeth Abbott Pfizer J&J Roche GSK BMS Novartis Sources: Evaluate, IMS Health - Midas

16. The trend for blockbusters is improving Number of products achieving global sales over $500 million 110 91 75 60 Source: IMS Health: MIDAS, Dec 2001

17. $1.8 Billion or > $920 Million - $1.8 Billion $460 Million - $920 Million $180 Million - $460 Million < $180 Million 1.0% 1.0% 2.0% 6.0% 90.0% But, only a small % of NCEs Become Blockbusters % Achieving Sales Total Per Annum Average for all Drugs -- $265 Million per Annum Sources: PriceWaterhouse Coopers, SCRIP

18. History of Key Pharmaceutical Mergers 1989 Bristol-Myers Squibb Smithkline Beecham 1992 Marion Merrell Dow Functional Functional 1994 Roche/Syntex Wyeth/Cyanamid Geographic 1993 Rhone Poulenc-Rorer Critical Mass 1995 Glaxo Wellcome Pharmacia & Upjohn Hoechst Marion Roussel 1996 Novartis Portfolio 1999 Aventis AstraZeneca Sanofi-Synthelabo Portfolio/ Geographic 1998 Roche/Boehringer Mannheim Functional/ Geographic 2000 Pharmacia/Monsanto Pfizer/Warner-Lambert Glaxo & SmithKline 2001 Abbott/Knoll BMS/Dupont 2003 Pfizer/Pharmacia 2004 Sanofi-Aventis

19. Pharmaceutical Industry Stratification ($Billions) Pre Cox-2 Issues Pfizer J&J GSK Market Capitalization 9/04 Novartis Sanofi-Aventis Roche Merck Lilly AZN Abbott Wyeth Takeda BMS SGP Bayer Pharmaceutical Revenues for 2004 Sources: Lotus-One-Source, Evaluate, Internal Analysis

20. Pharmaceutical Industry Stratification ($Billions)Post Cox-2 Issues J&J Pfizer GSK Novartis Market Capitalization 2/05 Sanofi-Aventis Roche Abbott Lilly AZN BMS Merck Bayer Wyeth SGP Pharmaceutical Revenues for 2004

21. What are the next set of Gov’t actions? • Medicare adding drug benefit for elderly will put more burden on the Federal budgets and spur Congress to find ways to reduce price of prescriptions • Import of medication from foreign sources where local government dictates pricing will undermine freedom of pricing in the U.S. market

22. Price Pressures will Drive Consolidationsin order to Maintain Earning Levels Sales Price Pressures limits Industry ability to use price for growth Price Sales Price Units Units M&S • Industry continues to • consolidate in order to • cut infrastructure costs: • Reduce sales reps • Eliminate TA areas • in Research • Reduce duplication in • support functions M&S R&D R&D G&A G&A EBIT EBIT Consolidations protects Earnings growth & Capital value

23. Summary Points on Industry Dynamics • Gov’t regulations have changed the industry dynamics requiring it to become more efficient • Gov’t price pressures will increase as Rx drug benefit is expanded and parallel importation rules are relaxed, which will drive more consolidations • These dynamics forced the industry to improve the planning processes

24. Agenda for Presentation • Government impact on Industry Dynamics • Portfolio Planning Impact • CI Function and its Operations • Role of Internal CI versus Consultants • Key Counter Intelligence Concepts • Summary and Conclusions

25. Portfolio Planning Process 1. Perform Environmental Analysis 2. Create a Vision of the Future 3. Conduct Internal Assessment 4. Decide on a Strategic Position 6. Develop a Plan 5. Develop Strategy Actions • 7. Manage the Planning Process

26. Planning Process in the 1980’s • Focus was on internal portfolio opportunities • External view emphasized market research data for current competitors (Static View) • A cursory run from PharmaProjects constituted competitive assessment for future environment • A “Plan” was more of a wish list of what management needed to meet growth rates and not what could be accomplished in a changing competitive environment

27. What does Market Research tell you? • The met and unmet needs of the current customers (focus on providers) • The perception of current products • The marketing positioning and differentiation among current products • Pricing • Key attributes • Promotion program • Detailing support

28. This Static View was inadequate for Impactful Portfolio Planning • It failed to predict changes in the market place due to: • New technologies • Process improvements by competitors • New competitive segments (Generics, Biotech) • Managed Care impact on segmentation of market • Which resulted in misallocation of resources for optimizing portfolio

29. Changes to Improve Planning Process • Evaluate Strategic Opportunities - Disease Strategy for Target Areas - Platform Technologies - Target Product Profiles • More analysis on pipeline developments (ethical, biotech and generic segment) to determine impact on internal development portfolio

30. Management Recognized Need forBetter Insights on Competitors Activities • Thus, CI units began to emerge in different functions within organizations to address the competitive issues that had blindsided them • CI functions required broader skill sets than Market Research departments since the scope encompassed responsibilities and issues across the business chain, including processes as well as product issues

31. CI supports Portfolio Management Competitive Intelligence supports optimization of future portfolio 1. Perform Environmental Analysis 2. Create a Vision of the Future - Monitor competitor activity at tactical/product level to ensure no major impact on environmental view 3. Conduct Internal Assessment 4. Decide on a Strategic Position 6. Develop a Plan 5. Develop Strategy Actions • Manage the Planning Process • – CI tracks competitor activity to ensure achievement of plan objectives

32. Strategic and Operational Levels Strategic Level Support Senior Management - M&A Evaluations Investor Relations - Wall Street Monitoring Corporate Planning - Divisional Challenges Operational Level Support Licensing - Product Evaluations Development - Clinical Tracking Marketing - Market Dynamics

33. Goal for CI Functions • CI ultimate goal is to serve as backbone of portfolio and operational planning process • Tactical collection of competitive processes and product developments should result in projections of future competitive environment • This allows management to allocate resources to win or hold market share in the future environment and maximize return on investments

34. Agenda for Presentation • Government impact on Industry Dynamics • Portfolio Planning Impact • CI Function and its Operations • Role of Internal CI versus Consultants • Key Counter Intelligence Concepts • Summary and Conclusions

35. What is Competitive Intelligence? • Competitive Intelligence is a processthat gathers and analyses information from various sources on specific business issues to develop insights that management can use in decision making • Competitive Intelligence improves various aspects of the planning process including product positioning, sales forecasting, and resource allocation to enhance portfolio optimization, thus improving financial performance

36. CI has various mandates • Benchmarking Across Competitors • Comparison across group of competitors • Company Level Analysis • Portfolio view of key competitors • Functional Issues • Explore process, system, or structure • Product Level Support • Licensing evaluations • Competitive pipeline tracking • Promotional support or message changes

37. CI needs and focus varies across the business chain Research Licensing Development Tech Ops Marketing LCM Disease Analysis Platforms Technologies Targets Clinical Endpoints Potential Claims Time to Market Clinical Issues Phase III & IV Market Dynamics Environment Potential Products Mechanism of Action Company Reviews Competitive Bidders Bulk Sources Cost Analyses Technical Assessments New Formulations Patents Regulatory issues Generic Launches

38. CI Work Process Model Databases Internal Human Collection Dissemination R&D - Private ADIS R&D Insight R&D Focus IDdb3 Pharmaprojects Decision Resources – DB4 Summary Reports Detailed Reports Summarize Analyze Recommend Product/Company Investment Reports SEC Reports IMS Audits Promotional Audits Product Evaluations External Human Collection Alerts Internet Publications ClinicalTrials Disease Advocates

39. Three Levels of Databases Private R&D Databases Several vendors gather information from publications, congresses, press releases, R&D days, and patent filings to reflect pipeline developments in Pharma and Biotech industries. Private Commercial Databases Several vendors gather information from surveys and audits on such items as revenues, units, prescriptions, sales forces, product detailing, promotional spending, CME, and journals. Agencies sell analyst reports and other published data. Public Databases Government agencies, industry groups, patient advocacy groups, individuals, special interest groups, university sites, and medical sites offer multiple opportunities to gather information.

40. Uses of Various Databases • R&D databases establishes framework of players in area, some insights on progress and positioning, possibly hospitals and physicians involved • Private commercial databases provides insights into portfolio developments and promotional support levels and priorities • Public databases give insight into portfolio, possible trial locations, physicians involved, and provides leads for primary interviewing

41. Review of Private R&D Databases Note: Record totals are from January 2002, except IDdb3 from 2001

42. Drug name Trade name Originator Licensee/licensor Patent Assignee CAS Registry Number Laboratory Code Pharmacological Action Therapeutic Class Clinical indications Nomenclature Molecular formula Development status Development history Abstracts Text Chemical structure Chemical name Key R&D Database Features

43. Private R&D Databases Issues • Various databases rarely agree on current development status of a particular compound • Data is usually 6-18 months old as it is collected from public forums, most of which require submission and review months in advance • Lack specific facts or insights desired by management related to a competitor’s drug • Phase IV trials rarely identified

44. Private Commercial Databases Issues • Many managers define the commercial databases as “competitive intelligence” and this is their view of the function • While there is valuable insights available from this data, it is retroactive data and it does not address all issues (promotional messages, Phase IV activity, etc) that may impact the future promotion of a product • It is of value when combined with primary CI to give a full picture of product support

45. Value of Internal Human Collection • Taps into expertise of internal associates to confirm database and external human collection inputs • Captures internal experts information picked up in the course of working in a therapeutic area from attending meetings, congresses, interacting with personnel from other pharmaceutical companies, and from interactions with external vendors

46. Value of External Human Collection • Primary collection captures more current information and potentially gives more relevant insight to specific company issues or hypotheses • Various inputs across a large interview audience helps build the CI analyst’s base for projecting the competitive situation

47. Sources for External Human Collection • Clinical Development: Physicians & Staff • Thought Leaders • Vendors and Suppliers • Functional Experts • Ex-employees • Special Interest Groups • Industry Organizations • Supply Chain (Wholesalers, Retailers, MCOs) • Wall Street Analysts • Publications

48. Key Collection Opportunities • Congresses • Collection of knowledgeable experts and company personnel in one location • Posters have lots of valuable data and insights into trail progress and potential product positioning • Company presentations are trying to build awareness of new product with physician community • Company Presentations • R&D days • Wall Street meetings • Industry meetings

49. Landscape Sweep by Franchise Clinical Development Pipelines Marketing And Sales Activities Generic Activities • Competitive Products • in Phase II/III/IV • Product Profile • Protocol Design • Progress Update • Trial Issues • Side Effects • Potential Impact • Therapeutic Overview • Product Ranking • Product Growth • Promotion Support • Detailing Levels • DTC • Symposia • Physician CME Events • Field pay and incentives • Patents Evaluation • Exclusivity Status • API Status • Generic Formulations • Open Issues • Generic Launch Timing • Franchise Mgt Plan by • Brand company

50. Landscape Sweep Sources • Secondary data sources • R&D: Adis, IDdb3, R&D Focus, Prous, Centerwatch • M&S: IMS, Verispan, PDDA, Scott Levin • Generic: Orange Book, Patent Filings, Paragraph IV • Publications • Primary interviews • R&D: KOLs, Clinical Investigators, CROs • M&S: Physicians, Pharmacy Directors, MCO • Generic: API producers, import/export agents